There can be no doubt that the Financial Conduct Authority (FCA) sees financial promotions as a potential high-risk area for consumer harm. They are the proverbial ‘front shop’: the way in which customers become aware of different ways to finance a product. The FCA is already starting to flex its muscles on financial promotions. Firms should therefore act now to ensure they are not on the receiving end of any supervision or enforcement visits.

THE FOCUS ON FINANCIAL PROMOTIONS

Ever since the FCA took over responsibility for consumer credit, there has been an increasing focus on financial promotions. In May 2022, the FCA issued a Dear CEO letter. It says that the FCA “expects authorised firms issuing and/or approving financial promotions in relation to consumer credit to ensure that all communications of financial promotions are clear, fair and not misleading and otherwise comply with the rules set out at CONC 3.

This includes ensuring that those to whom a financial promotion is addressed, or at whom it is directed, understand the nature of the firm’s regulated activities”.

The FCA identified a number of concerns including:

• customers being misled into thinking that “the lender will make no checks on credit status, whether with a credit reference agency or by other means”
• some promotions failing to include a representative APR when one is triggered; and
• promotions by credit brokers failing to state that they are credit brokers and not lenders.
• These messages were repeated in the FCA’s financial promotions webinar on 16 November 2022.

MORE RECENT DEVELOPMENTS

On 17 July 2023, the FCA published a consultation on guidance for financial promotions on social media. This led to, on 26 March 2024, the FCA publishing its Finalised Guidance 24/1: ‘Finalised guidance on financial promotions on social media’ .

Some of the key messages from FG24/1 are:

• The FCA expects financial promotions to be standalone compliant. While promotions of complex financial products “might require additional supporting information or disclosure”, the “initial promotion needs to remain compliant in and of itself”.
• The requirement for prominence in the FCA’s handbooks is “media-neutral”. Firms should consider the existence guidance on prominence. Firms should ensure information which is required to be displayed prominently “is displayed without needing click-through or any other optional action to view it”.

THE FCA’S DATA-LED APPROACH IS INFORMING THE WAY IN WHICH IT REGULATES

All of this activity probably comes as no surprise given the FCA’s financial promotions data from 2023. This says that the FCA continued to increase its “intervention activity in response to poor financial promotions”. For authorised firms, the FCA says 10,008 financial promotions were amended or withdrawn following the FCA’s intervention. The FCA “remain concerned about the levels of compliance with the financial promotion rules”.

THE FCA’S CASE STUDIES

The FCA has a dedicated webpage on financial promotion case studies. One is on motor finance. This says the following mistakes often happen:

• mentioning weekly/monthly payment without a prominent representative example
• using an incentive statement without a prominent representative APR; and
• failing to include prominently displayed credit broker statement.

THE FCA’S RECENT SUPERVISION ACTIVITIES

The FCA is now engaging directly with firms. We have seen the FCA challenging a firm’s compliance with CONC 3 and raising the following issues:

• the failure to include a representative APR where one is triggered
• the inclusion of potentially misleading statements; and
• credit broker statements lacking prominence.

SOME AREAS FOR DEBATE

It is fair to say that there are real areas for debate. For example:

• There are arguments over whether including a monthly finance cost next to an item’s cash price but requiring the customer to either click, or hover, to reveal the representative example complies with CONC 3.5.5R(5)(d).
• There can be a variety of ways to prominently disclose to a customer that a credit broker is not a lender in compliance with CONC 3.7.7R(1).

These issues involve assessments of prominence.

WHAT SHOULD FIRMS DO NEXT?

The Consumer Duty has turbo-charged the FCA’s enforcement powers. Firms can no longer rest on their laurels. The FCA is an invasive regulator: testing and probing what firms to. It has significant powers. The FCA’s messaging on financial promotions has been consistent: firms are expected to comply.

Firms should review their own financial promotions for compliance. If there are any areas of doubt, firms must ensure they can quickly deploy a credible argument on why their approach is compliant.